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CHALK one up for continental Europe's economic architects.
For the past several decades, the Anglo-Saxon consensus was that state
interference in the private sector economy was a mistake.

Government bureaucrats were in no position to pick economic
winners and losers - and if standing aside meant letting the forces of creative
destruction sweep away entire industries, so be it.

The continental Europeans, most successfully the Germans,
demurred. They were unconvinced that the shift from manufacturing to services
was either good or inevitable, and they used the full might of the state to try
to hang on to their industrial base.

The financial crisis may have briefly felt like a
vindication of this model - but the near collapse and continued frailty of the
euro brought a quick end to that moment of schadenfreude.

When it comes to manufacturing, though, the European
approach is being embraced in the White House. In a speech this week, Gene Sperling,
director of the National Economic Council and assistant to the president for
economic policy, laid out the economic rationale for the US shift.

When I spoke to him afterwards, Sperling was careful to
point out that the new approach did not amount to industrial policy, or an
attempt by the government to pick winners and losers.

But the White House has come to believe, Sperling said, that
manufacturers more broadly should be first among equals. Giving manufacturers
slightly lower taxes and more support for their research and development is a
good idea, Sperling argues, for two reasons.

First, because manufacturing has a particularly powerful
spillover effect on the rest of the economy.

The benign effect of manufacturing Sperling is most
enthusiastic about is the connection with innovation. That link, he argues, has
been drawn out in research by the Massachusetts Institute of Technology's
Production in the Innovation Economy initiative.

Its premise, which Sperling embraces, is that in most new
technologies, innovation happens most quickly and effectively when the
inventors work close to the builders.

Apple is today the most beloved - and financially successful
- US manufacturer of physical stuff. But Sperling's argument amounts to an
assertion that the Apple approach - with designers and engineers in California
and factories in China - works for the IT business, but not for much else.

In most industries, Sperling contends, those who outsource
manufacturing will soon find that they have outsourced their innovative edge,
too.

The second pillar of the White House approach is to insist
that the decline of US manufacturing, and, by extension manufacturing in the
rich Western economies, is not inevitable. Manufacturing, Sperling argues, is
not the agriculture of the 21st century, a sector fated to provide fewer and
fewer jobs over time.

Instead, Sperling believes that the United States has a
chance to bring jobs back home. "The degree that the US is becoming more
and more competitive in bringing manufacturing facilities and jobs back to our
shores is very encouraging," Sperling told me in an interview this week
after he gave his speech.

This is clearly one of the administration's talking points
this season - on Wednesday, Vice-President Joe Biden trumpeted the rise of
"in-sourcing" in a campaign-flavoured speech in Iowa.

This White House's view that the government can - and must -
support manufacturing relative to other businesses is a profound shift in the
conventional wisdom of the English-speaking world.

Since the days of Margaret Thatcher and Ronald Reagan, the
received transatlantic wisdom has been that state intervention is an inevitable
failure, that the decline of manufacturing is inevitable, too, and that
service-sector jobs can be just as good anyway.

The shiny towers of the City of London and the canyons of Wall
Street are evidence of that last conviction and, at least for a while, seemed
to be a vindication of it as well.

Sperling is an earnest technocrat, and his speech this week
was a determined effort to document the intellectual foundations of the White House's
pro-manufacturing tilt.

"Let me begin by acknowledging upfront that this is an
area where otherwise like-minded economists disagree," Sperling said at
the start of his remarks. His goal is not so much to convince his listeners
that he is right as it is to assure them that his approach is intellectually
respectable.

But for all its nerdy leanings, the White House is not the
Harvard faculty club, and an election is coming up. Manufacturing could be an
area of strong contrast between President Barack Obama and his most likely
challenger, Mitt Romney. Romney has more hands-on experience, but Obama may
have a more deft popular touch.

Unless you have a doctorate in economics, your intuition
probably accords with Sperling's point that building things is essential to a
country's economic well-being. Romney, who opposed the bailout of the Detroit
carmakers, often finds himself on the other side of that argument.

Inside the United States, the big political story this week
is the Supreme Court's deliberations on the legality of Obama's healthcare
overhaul. Elsewhere, that is a barely comprehensible local story - all other
rich countries provide some version of universal coverage and spend less money
and achieve better outcomes than the United States.

But from Berlin to Beijing, the debate about manufacturing
and whether governments have a duty to support it is a live issue. That is one
more reason this US election campaign matters so much to the rest of the world.

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